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Pending home sales down for 3rd month

Pending home sales in May disappointed with an .8% m/o/m decline instead of rising by 1% as expected. Also, April was revised lower by 3 tenths. This is the 3rd straight month of m/o/m declines and the index is at a 4 month low. The NAR continues to blame low inventories which is certainly the case but we’ve been seeing a recent rise inventories as sellers react to the persistent home price gains. They said “buyer interest is solid, but there is just not enough supply to satisfy demand. Prospective buyers are being sidelined by both limited choices and home prices that are climbing too fast.” The NAR did add something more to their concerns and this is more broader: “Weaker financial and economic confidence could also be playing a role in the slowdown in contract activity.” The NAR had a quarterly survey released a few days ago and “found that fewer renters think it’s a good time to buy a home, and respondents overall are less confident about the economy and their financial situation than earlier this year.”

Bottom line, I continue to believe that the housing market has reached a major inflection point in that rising prices have reached the point of dissuading buyers from pulling the purchase trigger. No question low mortgage rates help but higher home prices means higher down payment demands that buyers are balking at. To this point, the NAR also said “A much higher share of homeowners compared to a year ago think now is a good time to sell.” Home price gains of 5-6%, triple the rate of inflation, is just not sustainable as it is sowing the seeds of the industry’s own slowdown.